Reserve Bank of India Holds Repo Rate at 5.25%, Raises Inflation Forecast on Energy Concerns

India's central bank has opted for caution amid a turbulent global environment, keeping its benchmark interest rate steady. In its June 2026 Monetary Policy Committee (MPC) meeting, the Reserve Bank of India (RBI) unanimously voted to hold the repo rate — its primary policy tool — at 5.25%, while retaining a neutral policy stance. The decision was widely expected and follows a cumulative 100 basis points of rate cuts during FY25-26.

RBI Governor Sanjay Malhotra explained that the global economic environment has become more challenging in recent months, citing geopolitical tensions, volatility in financial markets, and weakening business sentiment. The ongoing conflict in West Asia and rising energy prices were identified as key concerns for policymakers, with increased demand for safe-haven assets creating additional pressure on global currency markets. The RBI noted that several major central banks are becoming more cautious and could lean toward tighter policies if inflation risks intensify.

The central bank acknowledged that inflation is likely to rise in coming months. While underlying inflation pressures remain manageable, the RBI raised its FY27 inflation forecast to 5.1%, with core inflation projected at 4.7%. India's retail inflation, measured by the Consumer Price Index, stood at 3.48% in April 2026. The government has mandated the RBI to maintain inflation at 4%, with a tolerance band of 2% to 6%. Reflecting the more challenging environment, the RBI lowered its FY27 real GDP growth forecast to 6.6% from an earlier estimate of 6.9%, citing higher energy prices, supply disruptions, and rising input costs.

Alongside the rate decision, the RBI announced a series of measures aimed at strengthening foreign capital inflows and deepening financial markets. These included liberalising foreign portfolio investment norms for government securities, expanding the Fully Accessible Route (FAR), and increasing investment limits for Non-Resident Indians and Overseas Citizens of India in equity instruments. India's foreign exchange reserves provide a substantial buffer against external volatility. Governor Malhotra stressed that India remains well-positioned to withstand external shocks, supported by resilient domestic demand and stable financial conditions.